1. Introduction
Business planning is vital to all organisations, whether they are in the public, private or voluntary sectors and whether they are large or small. Public and voluntary sector organisations might be more focused on providing a service than making a profit but they should all be concerned with meeting customers’ needs in the most efficient and effective manner. The emphasis might be different but the principles of writing a business plan are fundamentally the same for all types of organisations.
Many organisations, particularly those which are very small, might not think a business plan is necessary, or might think they don’t have the time. Our advice is to think again. It may be the single most important thing you can do to ensure your organisation’s survival. A formal business plan doesn’t have to be long and complicated. A simple clear outline will chart the path you hope to tread and identify potential pitfalls before they happen. It will enable any organisation to think and plan effectively about what it wants to achieve and will greatly increase the chances of success.
In this short paper we do not attempt to cover all aspects of business planning. Rather we highlight the benefits to an organisation of any size of having a clear direction, whether for one year (an annual operating plan) or for three or more years (the strategic business plan) and give some helpful tips on how to put a business plan together.
2. What is business planning?
Business planning is a continuous formal process to identify future opportunities and market needs, determine organisational objectives and make decisions about investment in resources to achieve those objectives. However, business planning must be kept in perspective. It is not a foolproof tool. Unforeseen events and circumstances can happen which may throw your plan off course. You need to be flexible and be prepared to change the plan as circumstances change. You will be able to deal with these much more effectively if you have already considered elements of risk at the very beginning of your venture. A business plan is a tool that can, and is, used on a regular basis by the organisation to measure progress and direct growth. The best plans drive the organisation and should be revised regularly to reflect successes and failures.
3. Why write a business plan?
There are real benefits to be gained from an effective planning process:
• It focuses resources on the question of where the business ought to be going and gives it a sense of direction;
• It will ensure the commitment of staff by involving them in the process;
• It helps to build credibility and can be an important tool in negotiations with investors and banks;
• It encourages you to think through your ideas in more detail and may identify weaknesses in your original thinking.
Business planning will not eliminate risk but will help to ensure that the right risks are taken at the right time. It allows mistakes to be made on paper rather than in the market place. It does not guarantee a satisfactory outcome, but should activate commitment towards realistic results so that most are attained most of the time.
4. The business planning process
In writing the business plan we suggest you:
1. Pick a small planning team and clearly identify the team leader.
2. Make sure the team has the necessary resources – time, money, access to information.
3. Give the team clear instructions about their roles and responsibilities.
4. Make sure the team understands the need for a structured planning process which will include:
• Agreement on the timetable;
• Understanding the different stages in the development of the plan;
• The process for obtaining final agreement to the draft plan.
5. The elements of a business plan
There is no such thing as a typical business plan. Each is unique to the organisation for which it is written. Different organisations in different sectors and of differing sizes will all have their own planning needs, but a framework layout for the plan should ask the questions:
• Where are we now?
• Where do we want to get to?
• How will we get there?
• How will we know when we have got there?
Section 1 - Where are we now?
This is essentially an audit of the current situation with a description of the organisation, including its products and services, organisational structure and staffing, assets and financial situation, marketing approach, competitors and growth to date.
Section 2 - Where do we want to get to?
This section is concerned with determining strategic objectives for the future. You will want to outline your vision for the organisation and detail the short term (up to 1 year) and long term (up to 3 years) aims and objectives. Every organisation needs objectives – to tell it where it is going, the purpose for which the business exists and the function it performs. The organisation’s objectives must be determined before any attempt is made to produce the operational plans. To be really useful the objectives should be SMART (Specific and not vague, Measurable and not abstract, Agreed and not imposed, Results orientated and achievable, Time related and not open ended).
In order to decide on your objectives you need to:
• Analyse external factors through a STEP (Sociological, Technological, Economic and Political) analysis;
• Carry out market research in your particular field;
• Talk to and listen to your customers and stakeholders;
• Take a close look at your competitors;
• Identify your priorities and key activities ;
• Set specific targets: financial and non financial; internal and external, qualitative and quantitative;
• Undertake a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis and use the SWOT analysis to summarise your research.
Section 3 – How will we get there?
This section should be an outline of the action you will take to achieve the objectives. It should focus on the following priority areas:
a. Products and services
What products and services will we be delivering at what price and in what market? Assess and analyse
potential new areas of activity. You should always be asking the question, ‘What makes us different?’ i.e. what is our unique selling point (USP)? This will determine whether a customer will buy from you or a competitor. Think about quality, price, uniqueness, location, and then try and answer the following questions: Who will buy from us? Why should they buy from us? How will we provide what they want to buy?
b. Finance
This is a core part of the plan. You need to: outline the current financial situation and the best estimates of the reserves; produce an overall annual budget and the cash flow needed to attain the business objectives with scenarios and assumptions; make an assessment of the probable return on the financial investment, and outline the level of financial accounting and control that will operate. It is essential that the necessary funding is made available to implement the business strategies. If you are using the business plan as a basis for requesting funding you need to make clear how much you are asking for and what it will be used for.
NB: The best advice we’ve ever been given about budgets is to be pessimistic – then double your estimated expenditure and halve your customer/sales forecasts.
c. Marketing
Without a market the organisation is not in business. Ask yourself some straightforward questions and carry out some market research if necessary to find out the answers:
• Who are our customers; who could be our customers?
• What do our customers and potential customers want now and what might they want in the future?
• What market and market segments are we in?
• Are we selling at the right price and with the most effective product promotion?
• Do we want to stay in this market and/or explore new markets and /or market segments?
• Are sales in our existing markets growing or declining?
• Do we want to develop new products or services for existing markets?
• Do we want to develop new markets for existing products or services?
• What will it all cost and do we have the resources to do it?
• What are the benefits and the risks of the different marketing strategies?
d. People
People are one of your most valuable assets and are vital to the success of the organisation. You will need to consider organisational structure, staffing needs, leadership, staff development and training and in the plan be able to answer the questions: Are the people available to put the plan into operation? Are the numbers appropriate? Are they too many or too few? Do they have the required levels of knowledge and skill? Are they well organised? Is their attitude right and are they well motivated?
e. Corporate governance
Even the smallest organisation now needs to have documented procedures for such things as discrimination, absence, etc and to take into account the organisation’s legal framework, equal opportunities, health and safety, environmental issues, and community involvement. The plan should include a checklist or reference to the organisation’s manuals, policies and procedures.
f. Other
Your plan should not be just about what is happening now. Today, all organisations are working in a rapidly changing environment. To succeed you will need to stay ahead of the competition whilst maintaining the highest standards of quality and service. Your plan should include what you see as the critical success factors for your organisation; how innovation and change – and risk – will be managed; how trends in the marketplace will be identified, and how to make the best use of external advice and consultancy.
Section 4 - How will we know when we’ve got there?
This section deals with the monitoring, review and evaluation of the organisation’s performance. It should answer the following questions:
• Have we got a quality assurance process in place?
• Do we have a process of continuous review, monitoring and evaluation against a specific timescale?
• What performance indicators have we developed to assess the progress of our organisation towards targets?
• Do we have a system in place for assessing feedback from customers?
• Are we benchmarking our progress against other similar organisations?
It may also be useful to provide a business plan summary in the form of a grid where you list specific targets, specific tactics to achieve these targets, a budget for each tactic, a timeline to achieve them, and a list of who is responsible for achieving each.
6. Presenting the Plan
How clearly your plan is written and presented will determine the likelihood of it being read. It is important, therefore, to bear in mind your audience and to take care with the plan’s presentation. You should consider including the following:
• A front page with the title of the document, the organisation to which it applies and the date it has been published;
• An introduction which outlines any background to the document including why it is being written, who produced it and any relevant names and addresses;
• A contents page indicating on what page each section, including appendices, can be found;
• A short Executive Summary at the beginning which identifies the main points of the plan;
• Headings, page and paragraph numbers;
• Graphs, photos, diagrams if appropriate;
• CVs of key managers, sales data and audited accounts and other detailed information which should be attached as appendices.
7. You have a plan – use it!
The plan is finished. Well done! Everyone agrees that this is the way forward. Now make sure it is. There is a great tendency to feel that you can now get on with the business – and the plan can gather dust on the shelf until the same time next year. Don’t do it. This is a recipe for failure. If you do nothing else in your management team meetings review the plan and progress against the plan. If circumstances have changed, change the plan – with everyone’s agreement. Fortune can favour the bold, but you must keep the focus on the agreed strategic objectives.
Key tasks to be carried out must be identified and should form part of a broad action plan covering the period of the business plan. They should represent priority actions and time should be allocated to them accordingly. In addition to the key tasks the timescale by which the tasks must be completed, responsibility for carrying out the task and the investment required must also be listed.
8. Monitoring and evaluation
This is the process of determining whether or not objectives have been achieved. The purpose of this assessment is to provide input for future planning and the opportunity to discuss performance and development needs with individuals. An important part of the control process is to manage financial performance. This requires:
• Forecasting revenues and running expenditure for each forthcoming year.
• Planning capital expenditure.
• Recording actual revenues and running expenditure.
• Comparing actual achieved against the plan.
• Analysing variances.
• Taking corrective action.
Controlling the business is a matter of comparing the actual data with the year to date budget from the previous year’s data. A control report should show the actual profit/surplus or loss for each month and year to date compared with forecast and the previous year together with an analysis of the variance. The layout of management accounts should be the same as that of the budget so that a direct comparison can be made. The business plan is not a one off exercise. The review, monitoring and evaluation process must be used and assumptions must be checked to ensure that the basis of the plan has not changed. The strategic plans should be reviewed every year and an additional year added to them.
9. Ten top tips on writing a business plan
1. Keep the plan simple, clear and easy to read. Quality is more important than quantity. It should be well written and engage and stimulate the reader with its clarity, focus and realism.
2. Base your plan on accurate information and facts derived from market research wherever possible. Give the sources of your research.
3. Understand the difference between a strategic plan which sets out the company’s aims for the next 18 months to three years, and an annual operating plan, which should do what it says – act as a guide for how the business will run for the next 12 months.
4. Involve appropriate members of staff in the process – and the implementation. This is more likely to ensure buy-in from staff and increase the chances of success.
5. There are no substitutes for simple unambiguous budgets which clearly show fixed and variable costs. Include a monthly one-year cash flow forecast.
6. Set realistic and attainable targets
7. Be flexible and change the plan according to changing circumstances. Learn from mistakes and incorporate the lessons learnt into the next version of the plan. A business plan should work for the organisation - the organisation should not be a slave to the plan.
8. Review the plan regularly and don’t be afraid to act immediately on any variances.
9. Ask someone outside your organisation who is not a competitor but who has expertise in your field to review your plan before finalising it.
10. Present your business plan attractively to anyone who might read it. Remember they might not have much time and will want to get to the heart of it quickly.
10. Our services
We offer a bespoke service to all organisations, including community and voluntary organisations and charities. We specialise in working with smaller organisations. We only accept commissions where we know we can make a difference, and in all cases we offer an initial free one hour consultation to ensure that you, and we, are happy that we can achieve success. Our fees are moderate and we are happy to quote by the day, or a fixed price for a specific assignment. We can work with you to develop a robust strategic business plan and an annual operating plan and can also advise on a wider front. We are also able to offer a half or whole day workshop based around this paper. Our contact details are below. For a free, no obligation introductory meeting please ring or email either organisation. We will be happy to explore potential opportunities with you.
February 2007
© Maurice Cohen © John Holme
MBC Consulting Shalder Management
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Hoxne Duxford
Suffolk Cambridge
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T: 07799 776414 T: 01223 501473
E: mcohen@mbcconsulting.net E: shalder.management@ntlworld.com
W: www.mbcconsulting.net